Financial Plan That Works For Everyone

To get anywhere, you need a plan and the same goes for your financial future. Unfortunately. A financial plan appears, to most of us, like a visit to the dentist - something to postpone until you wake up screaming in the middle of the night.

So we came up with a financial plan that's more like a visit to your favorite coffee shop. It involves forming simple habits and takes less than an hour to start implementing.

Investing, tax planning

Maximize your Employee Provident Fund (EPF) contribution. If your total contribution (including your employer's) to EPF is less than Rs 1.5 lakh, invest the difference in Tax Saving (ELSS) funds. Your tax planning is done.

Invest 30% of your take home salary in diversified equity mutual funds. Never invest directly in stocks. Schedule a SIP to automate this habit.

Got your annual bonus? Invest 50% of it in a 5 year auto-renewing bank FD. This is your emergency fund.

Invest the remaining bonus in yourself - take a course, travel, do fun stuff.

If you have a home loan, split the bonus 3 ways - one third to prepay the loan.

Insurance

If you have people who depend on your income, then buy a 40 year term life insurance plan at 25, then a 30 year plan at 35 and a 20 year plan at 45. Every time make sure the total sum insured is 30x your then salary. There is no need to buy a life insurance policy unless you have dependents.

Buy health insurance for every member of your family. Even if you're covered by your employer. Div.>

Buy insurance for your car, your house and its contents. Div.>

Renew your insurance every year 1 month in advance. Div>

Please note that I said "buy" not invest. Insurance is not an investment.

Loans

Only ever take a Home Loans to buy a home. Never more than 75% and never longer than 15 years. Pay it off within 7 years. Yes, it's possible.

Bonus tips

Maintain a single no frills bank account and a single no frills credit card.

Set all your bills (electricity, phone etc) to auto-debit to your credit card every month.

Pay off your credit card every month - in full. Set it to auto-debit your bank account every month.

Contribute to charity - your time is better but some money will do as well.

Congratulations! You've just set yourself up for a comfortable financial future.

[Source: https://scripbox.com/blog/financial-plan-everyone]

Home Loan Closure Process

Your home loan closure process starts after paying the last EMI. In an ideal world, you should get all your property documents, NOC, Lien removed automatically and a Thank you note sent from the Bank.

Before this article turns into ‘fine prints’, here are the main things to know before signing the Bank’s acknowledgement letter.

Home Loan Closure Process

After your last Home Loan EMI, you need to send a written letter/application for return of original documents. Mention having paid the EMI with no dues left. You may also attach proof of last EMI payment.

It is good practice to mention the list of documents you expect the bank to return.

Get an acknowledgment receipt of loan closure application from your bank. Banks take 7-10 days to respond to closure requests.

Tasks for Home Loan closure

1). Original Property Documents

Collect all your original documents (In original condition) from Banks. Here, is a handy list of documents to refresh you.

Why it’s important?

The original documents with House Loan Interest Rates will be required to prove your ownership and also when selling the said property. Make sure to receive/check all the documents you had given at the time loan disbursement.

How to do this?

Your home loan bank has all your property documents. They are responsible for returning it to borrower. Please make sure that banks Do Not hand over property documents to builder as it because further inconvenience and running around.

2). Home Loan NOC

If you have paid for it, you should get a receipt for it. NOC (No Objection certificate Or No Due certificate or) at home loan closure is the proof that you have completely paid the loan and property is debt free. (Interest + principle). Look for this line in your Bank’s NOC letter.

The address of property and account details of borrower/s should be mentioned in NOC.

Why it’s Important?

NOC letter is loan clearance letter. This states that property is now debt free and bank has nothing to do with it. NOC is required for property resale. NOC is also beneficial in updating your credit score

How to Do this?

Your Bank is responsible for giving you NOC. Your job is to ask them or insist on it.

3). Remove Lien

A Lien is a transaction registered in Registrar Office against the property. Banks do this to prevent the borrower from the selling the property before paying back loan.

Why it’s important?

Once cannot sell the property with a lien registered against it. Also, the lien transaction suggests property is not completely yours.  This is a very important process and takes 10-14 days.

[Source: https://loaneasy.in/home-loan-closure-process/]

What Is EMI And How Is It Computed?

EMI is an oft repeated term that is associated with any loan taken. Let us understand how EMI works and what are the different aspects associated with EMI. The EMI facility helps the borrower plan his budget. The EMI is calculated taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum.

An Equated Monthly Installment (EMI) is usually a fixed amount of money that you need to pay your bank or lender every month as repayment of a loan taken, until your loan is totally repaid. It is essentially made up of two parts, the principal amount and the interest on the principal amount, divided across each month of the loan tenure. The EMI is always paid to the bank or lender on a fixed date each month. This could be done though post-dated cheques issued in favour of the lender or by providing auto debit instructions to your bank for the same.

Here’s the formula to calculate an EMI:

EMI = [P x I x (1+I)^N]/[(1+I)^N-1], where P is the loan amount or Principal, I is the Interest rate per month. [To calculate rate per month: if the interest rate per annum is 14%, the per month rate would be 14/(12 x 100)], and N is the number of installments.

Now, you might assume that the equal parts of the principal and interest are repaid to the financial institution every month. However, this not the case. During the initial years of repayment, the interest component repaid is higher while in later years, the principal component is higher. 

So, you cannot assume that you will have repaid half of the loan amount once half of the loan tenure is over. A more likely scenario we that you’ve reduced the total interest component that was due by a considerable amount while the principal amount remains to be paid.

Here is a simple example that explains how the repayment of your EMI reduces your Home Loans in India amount during the repayment period leading up to the end of the loan tenure.

Here the loan amount is Rs. 1, 00,000, which is lent at an interest rate of 12% with loan tenure of 12 months.

The monthly EMI is calculated at an annualized rate of 12% and amounts to Rs.8,885 per month with the total interest component amounting to Rs.6,619.

Will the EMI change during the loan tenure?

There are three reasons why your EMI might change during the tenure of your loan.

Interest rate on your loan changes – If you have opted for a floating interest rate, the interest rate on your loan will change whenever the floating rate is reset by the lender. This, in turn, will result in a change in your EMIs. However, note that you can instruct your lender to not to change the EMI and instead request for change in the tenure of the loan.

You prepay the loan – In case you prepay the loan amount during the tenure of the loan, your EMI will change. This is because the principal of the loan will have gone down and the interest due will be based on this new principal. Here too, you can ask your bank to change your tenure instead of the EMI. This will help you repay the loan quickly.

[Source: https://blog.bankbazaar.com/what-is-emi-and-how-is-it-computed/]

House Price Inflation Eases

According to the latest data released by the Reserve Bank of India (RBI), the House Price Index (HPI) rose 9.8% year on year (yoy) in the third quarter of the Financial Year (FY) 2015-16. This would be the quarter that ended on 31st December, 2015. This is the lowest ever rise that the index has shown. What does it mean for you? Let’s find out.

What is HPI?

HPI was created by the RBI to measure the change in the price of residential housing in India. It is meant to serve as a gauge for house price trends in the country. HPI was created in 2010-11.

What does it cover?

HPI considers the transacted amount for the house, based on registration details available in Government houses across 10 cities including Delhi, Mumbai, Bengaluru and Kolkata. The RBI considers the date you register the house as the date that the house was sold. The data is analyzed and compiled based on the transaction price mentioned during registration. This would be the price declared by you, the buyer.

How is it calculated?

Seemingly obvious, it is an average of house prices across India. First, the price per square meter (PSM) of all the houses is considered and a simple average is taken. For this the houses are classified into small, medium and large, based on the floor space area. Median prices are considered. Next, the percentage of houses transacted in each of the categories is considered. This is taken as the weight. Finally, price relatives are calculated based on the average PSM for small, medium and large houses in each ward of each city.

What does the current data indicate?

In the quarter that ended on 31st December, 2015, the overall rate of increase in the index has fallen below the 10% mark. This is for the first time in almost 4 years. This is just like the Consumer Price Index (CPI), where fall in percentages indicates slower growth. So, house prices have increased but at a slower pace than before.

Which are the cities that stand out?

Out of the 10 cities, six cities showed a slow-down with regard to the growth in house prices. Kolkata saw the slowest increase in the third quarter of the FY2015-16. Chennai is another city that recorded a modest rise among the top 5 cities. The city’s HPI grew by 8.2% yoy. Bengaluru was the city that registered the highest increase in growth in its house prices. The city clocked a 12.5% rise in its HPI. Mumbai was a close second, with a growth of 11.1%.

Why is this the right time to buy a house as well as before you go for the Home Loans?

Here are three reasons why you could look at buying a house now:

House prices have come down – With unsold inventories in several cities, it is no surprise that house prices seem to be coming down. If demand doesn’t pick up, more slides cannot be ruled out.

Interest is showing a downward trend – Interest rates have fallen significantly in the last 2 years. Consider this – RBI’s repo rate has come down from 8% to 6.5% now. This would mean lower interest rates on your Home Loan.

Protection in place – The Real Estate Bill has now become an Act as of 1st May 2016. This should help protect home buyers.

Buying a house is not a simple process and requires a lot of due diligence. A lot depends on your financial situation. This should be given prime importance over all other factors. Make sure you think it through before you go for that Home Loan.

[Source: https://blog.bankbazaar.com/house-price-inflation-eases/]

House Loan Interest

http://www.hdfc.com/housing-loans/home-loans/for-new-homes-salaried

The Dos and Don’ts for Home Loan Prepayment

Prepaying your Home Loan can be a bit tricky, especially when you’re not aware of the formalities and extra charges involved in the process. Prepayments might be beneficial for you financially as they help reduce the burden of interest, thus reducing the overall cost of the property.

As soon as you receive some extra cash in the form of a hike, promotion or a new job that pays really well, the first thing that probably pops into your head is, “Woohoo! Let’s prepay that Home Loan now!” Getting rid of your liabilities sure sounds like the smart thing to do, but there are a couple of things that you need to consider.

Before you start thinking about what to do and what not to, here are a couple of questions you need to ask yourself:

How old is my Home Loan?

How much tax am I saving?

What’s the rate of interest?

Am I finding it difficult to manage my EMIs?

What’s the return I could get by investing the surplus cash in a good instrument?

Additional Reading: Is This A Good Time To Opt For A Home Loan?

The answers to these questions will help you determine how to go about prepaying your Home Loam. You need to know that there are a couple of things that could possibly go wrong in the process of a Home Loan prepayment. To ensure that nothing goes wrong for you, here’s a list of dos and don’ts you need to keep in mind:

  

Dos

Choose your loan wisely

Although this applies to the initial phase of getting a Home Loan, you need to put in a lot of research before deciding which one to go with – especially if you plan on making a prepayment at some stage. It’s advisable to check all the options being provided by various banks before taking the final call. Choose a scheme that gives you an option to prepay without charging you for it.

Know your budget

Depending upon your need—whether you’re about to purchase an apartment or an independent house, the loan amount changes considerably. If you’re planning to build a house from scratch, the charges might increase further. Choose a location according to your budget and try your best to get the right deal. Although it might be slightly tedious, it’s always better to reduce the loan amount rather than increasing your financial burden. Decide on a budget, choose a house accordingly and then apply for a loan. Skipping the first step might leave you financially strained in the end, and you wouldn’t want that, would you?

Pay steady EMIs

To ensure that prepaying a loan works to your advantage, keep your EMIs unchanged. When you decide to prepay, you get two options to choose from—you could either reduce the EMIs or reduce the tenure of the loan. In both these cases, the aim is to keep the EMIs unchanged. So, choose an EMI amount you’re comfortable with and try to keep it as steady as possible. Calculate your EMI

Carry all relevant documents along

Once you consider every aspect involved in prepaying a Home Loans Rates and are ready to go ahead with it, carry all the relevant documents- a government-issued photo ID proof (like a driver’s license or PAN card) and your cheque book along. Apart from making your loan prepayment, you also need to pay simple interest for the month towards which the principal is being prepaid.

Don’ts

Calculate the benefits beforehand

Prepaying a Home Loan might not be the best alternative in every case. Therefore, before making any hasty decisions, it’s advisable to calculate the returns that can be made from the same amount if invested elsewhere and compare it with the interest amount of the Home Loan.

Don’t overlook the tax benefits of the loan

Home Loans can offer great tax benefits with attractive rebates on the principal and interest components. That’s a good enough reason for you to never overlook the tax benefits of the loan.

Don’t prepay the entire loan amount

Many Home Loan seekers look to prepay the full loan amount. Instead of doing this, you can look at a partial prepayment if the amount for which interest is being paid is less than what the funds would fetch when invested in other financial instruments with assured returns.

Now that you know all about the dos and don’ts of Home Loan prepayment, it’s time to apply for a Home Loan!

[Source: https://blog.bankbazaar.com/the-dos-and-donts-of-a-home-loan-prepayment/]

Top 12 Terms You Must Know Before Taking Home Loan!

1. What is Margin?

In 2010, RBI set a ceiling limit on home loans which limits the amount of loan one can take against property to 80% of the property value. This means that while the bank pays 80% of the total cost of your property, the remaining 20% needs to be paid by you. This remaining amount is referred to as margin or down payment.

2. What are an Offer/ Sanction Letter?

An offer letter is a formal confirmation from the bank stating that it has agreed to consider you as one of its loan customers. It does not confirm sanction of home loan. The loan will be disbursed after a verification of all legal documents and eligibility of applicant.

3. What are Post Dated Cheques?

Taking PDCs for home loan repayments is a common practice banks. These cheques are addressed to the bank, state the exact EMI amount and are signed by you.

4. What is Disbursement?

Disbursement means payment. It refers to the release of loan amount to borrower by lender. Usually, banks disburse the loan amount once all the submitted documents have been verified and the down payments have been paid.

5. What are Equated Monthly Installments (EMIs)?

EMI is the repayment you make to your lender every month. It is an unequal combination of your principal repayment and interest payments.

6. What is Pre-EMI?

When you buy property which is under construction, loan amount is partially disbursed to the builder. When a loan is partially disbursed, only interest payments are made on that amount.

7. What is Resale Property?

When you buy property from someone who already owns it before, it is termed as resale. It indicates that you are not buying a new home straight from the builder and are not the first owner of that property.

8. What is meant by Pre-approved property?

Now days, several builders get their projects pre-approved by lending institutions. A pre-approved property means that the concerned financial institute has verified all legal and technical documents of the project and has found them in order.

9. What is Credit appraisal?

Credit appraisal is a check on the applicant’s financial situation to determine eligibility for home loan and the maximum loan amount. Credit worthiness of an applicant assures his repayment capacity.

10. How is Pre-Payment of loan beneficial?

When a borrower chooses to make lump sum repayment of loan, it is termed as pre-payment. Pre-payments are beneficial as they help get rid of debt faster by reducing loan tenure.

11. What is Security in a loan?

Security is the asset provided by borrower while taking loan. In this case, the property being purchased serves as asset for home loan. If you fail to repay the loan due to certain circumstances, the bank can sell this property or convert it into an asset to recover loan amount.

12. Processing & Administrative Fees

Every bank charges processing and administrative fees for processing the documentation of your home loan. On an average, the fee ranges from 0.5% to 2% of loan amount.  Though it seems like a small percentage, it can add considerable weight to your home loan costs.

[Source: http://www.switchme.in/blog/2014/04/all-you-need-to-know-before-taking-home-loan/]

Five things that matter for Home Loan Applicants

1. Applicant’s Age and Income

Banks look beyond your salary and age. “Home loan eligibility is calculated on the basis of the income of the applicant and the number of working years left. A person who is 50 year old and earning Rs. 105 Lacs per month could take a loan of Rs. 60 Lacs and in another case a 30 year person with same earning amt is eligible for a loan of Rs. 94 Lacs.

The latter has 20 more years to repay the loan. As a housing loan is a 20-25 year-long contract, lenders need to be sure of your repayment capability. Lenders prefer applicants employed with a particular firm for at least a year. Says Sukanya Kumar of RetailLending.com: “Banks can be sceptical about giving loans to first-time entrepreneurs. Those working for firms with less than 50 employees also face difficulty.” Your profession could play spoilsport. Some banks do not lend to media professionals, lawyers and policemen.

2. There are so many enquiries

Making so many enquiries for a home loan could mar your chances of securing one. You asking around for the best rates could be misinterpreted by prospective lenders. If you are trying to take home loans then bank making so many enquiries. The best rates could be misinterpreted by prospective lenders.

3. No credit history

If you don’t having any legal credit history it means you are under the illusion. If there is no credit history it means there is no way the lender can evaluate your creditworthiness. If not servicing any credit at the time of applying for a loan could also lead to a loan rejection.

4. Your Property Status

If you are going to apply for Loan then bank wanted to know your background like how much property do you have and where is your property location. Mostly banks lend only to select builders. If any person, projects or developers who is Blacklisted could be a reason for your loan application being rejected.

5. Your Family background

If you are a woman, your marital status may be creating a problem. Despite many lenders offering women-specific housing loan products, banks can be reluctant to lend to a single working woman, as they fear the woman might stop working post marriage and put the repayment in jeopardy. If you are a tenant of a loan defaulter or have one as your tenant/family member, you will find it difficult to secure a loan. Also, do not apply for a loan jointly with your sibling, it will be rejected.

[Source: http://www.affordablehomesindia.com/blog/things-that-matter-for-home-loan/]

Home Improvement Loan

What is Home improvement Loan?

The owner of the house (for which Home Loan is ongoing) May apply for home improvement loan. The purpose of taking the loan is home renovation. When asked for, your home loan bank will offer you this loan.

Why home improvement loan?

Assuming, you have made up your mind to renovate the dream home and there is no pleading Mrs.

Buying a home stretch your financial limits and renovation is costly. If you have already exhausted asking your family/friends and thinking of personal Loan from Bank? Stop!

Personal loan entails higher interest rate for shorter duration. You can approach your home loan bank and ask details about ‘Home Improvement Loans’ for renovation purposes.

Why Do that?

Home Improvement Loans entail lower interest rates than personal loan and higher loan tenure for lower EMI.

In short, it’s a better deal than taking personal loan.

The interest rate is at home loan interest rate. The Loan amount eligibility increases with each repayment of home loan. Home improvement loan tenure can go up to 15 years, meaning lesser EMI when compared to personal loan of maximum tenure of 7 years.

Tax Exemption

Up to 30,000 under Section 24b, but limited to/under home loans exempt of 2 Lakhs.

There is No prepayment charges on home improvement Loans. (Choose Floating interest Rate )

If you are lazy then, taking home improvement loan is still better as it would require lesser documentation.

What is covered under Home improvement loan?

Below, is the list of things that comes under home improvement loan? It is important to stick to and remember at least one of them. This is the answer to, when Bank Agent asks “Why need loan” and Not ‘None Of your..’

1). Property Renovation.

2). Wood Work, False ceiling, Kitchen Work

3). Repair Work, Adding a room

4). Plumbing, Tiling, Flooring & Electrical works

5). Painting, Waterproofing,

Eligibility considerations for Top up Loan?

Existing home loan customers of the bank are eligible for top-ups. One can be eligible for top up in 6-18 months of paying EMIs on time and maintaining good credit records with the bank.

[Source: https://loaneasy.in/home-improvement-loan/]

Terms associated with Home Loan

Down payment or Margin

Because houses are expensive, home buyers typically pay  a percentage % of the total value of a home. The remaining price is covered by a bank or other financial institutions through a mortgage or home loan. The amount that a home buyer pays is called as down payment or Margin. For example if you plan to purchase a property worth 80 lakhs, and the bank can fund up to 80% of total amount, which is 64 lakhs. You will have to pay remaining 16 lakhs.  In Jul 2010, RBI set a ceiling limit on home loans to  80% of the property value. But  in case of small value housing loans, up to Rs 20 lakh, home loan lending institutions can provide loans up to 90% of the property value, as such loans are part of priority sector advances.  Please note Down payments usually do not include costs such as registration charges, stamp duty costs etc.

What is Resale Property

Resale means you are not buying an apartment in a building under construction, or a ready flat, directly from the builder.  Instead, you are buying a flat from the owner. While buying resale property, one should make sure that it has clear marketable property title , it has  record of all previous owners of property and the reseller has undisputed ownership. One should also check for the existing loan on the property and be aware of the amount that is to be paid to the society at the time of transfer of ownership

What is Freehold Property? What is Leasehold property?

A freehold property means that you own the land it is built on and also the house. For apartments, ownership of the plot is shared jointly with the other owners of the respective flats within the building in proportion with the ratio of the area owned of the consolidated built-up area. In a freehold property. You can live there for as long as you desire. You have the right to make alterations to the house or redo some parts of the house though You might have to take permission from authorities if you have to make structural changes.

If you purchase a leasehold property, then you have the right to live in a property for a predefined period of time. One is not the owner of the property or the land it is situated upon and has to pay ground rent to the owner or the leaseholder. Once the defined period in the lease expires, the ownership of the property is given back to the land owner. Mostly leases are roughly given for period of 99 years, It is possible to extend the leasehold to up to 999 years and one can also purchase the leasehold property by paying a price for it.. Before buying a leasehold property, find out how long the lease is.

What is Pre-Approved Property?

Interest: What are EMI, Fixed and Floating Rate?

When you take the loan you have to pay interest on it.  Equated Monthly Installment (EMI) is the amount payable to the Lending institution every month till the Loan is paid back in full. The EMI consists of Principal and Interest. During the early part of loan tenure the most of EMIs are used to service the interest and principal is served in the later parts of loan tenure. Our article Understanding Loans explains EMI in detail.

Amortization schedule is a table that gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time.

Interest can be Fixed or Floating.

In Fixed Rate Loan rate of interest is fixed either for the entire tenure of the loan (called as pure fixed loan) or a part of the tenure of the loan. In pure fixed loan, the EMI remains same irrespective of the conditions prevailing in the market Mostly banks offer Fixed rate for a fixed period and then review the rate at end of the specified period.  So banks introduce reset clause in their fixed home loan to effect a change in the interest rate at a future date. The banks have the discretion to increase or decrease the House Loan Interest rates in case the market rates of interest increases or decreases. So such fixed rate loan is not fixed in the strict sense of the word.

Floating rate means interest rate on loan is not fixed, it varies with the market conditions over the period of loan. Floating interest rate home loans are tied up to a base rate plus a spread or margin. Banks are not permitted to lend below base rate, if the base rate varies the floating interest rate also varies.

[Source: http://www.bemoneyaware.com/blog/terms-associated-with-home-loan/]